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Impax Asset Management

PRI reporting framework 2017

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You are in Direct - Listed Equity Incorporation » ESG incorporation in actively managed listed equities » Implementation processes

Implementation processes

LEI 03. Percentage of each incorporation strategy

New selection options have been added to this indicator. Please review your prefilled responses carefully.

03.1. Indicate (1) which ESG incorporation strategy and/or combination of strategies you apply to your actively managed listed equities and (2) the breakdown of your actively managed listed equities by strategy or combination of strategies (+/- 5%)

ESG incorporation strategy (select all that apply)

Percentage of active listed equity to which the strategy is applied
100 %
Total actively managed listed equities 100%

03.2. Describe your organisation’s approach to incorporation and the reasons for choosing the particular ESG incorporation strategy/strategies.

Impax Asset Management is a leading investment manager dedicated to investing in the opportunities created by the scarcity of natural resources and the growing demand for cleaner, more efficient products and services. Our listed equity funds seek out mis-priced companies that are set to benefit from the long-term trends of climate change, inadequate infrastructure, environmental constraints, changing demographics, urbanisation and the resultant increases in resource scarcity. Investment is focused on a small number of deeply researched global equity strategies across alternative energy, energy efficiency, water, waste, food and agriculture and related markets.

Our entire investable universe is screened quarterly on a normative-basis by a third party ESG-research provider , in order to ensure that none of our companies breach any of the ten UN Global Compact Principles. We will not invest in companies that breach fundamental normative issues such as Human Rights, Labour Rights or involvement with corrupt practices. However, we do not perform any other screens, such as negative screens, across our listed equity investments.

A thorough ESG-analysis is fully integrated in our investment analysis and process, as it provides us with a more complete picture of the companies we invest in and results in a better assessment and understanding of the broader risks and opportunities. By analysing companies beyond the financials, we aim to identify company character and quality.

03.3. Where assets are managed using a combination of ESG incorporation strategies, briefly describe how these combinations are used. [Optional]

Our investment area focusing on opportunities around resource scarcity and environmental markets, can be viewed as a thematic approach and is the area our entire investment team is fully focused on.

We view our normative UN Global Compact screening as a "must pass" first element for all our companies in our investable universe, whereas our ESG-integration allows us to drill much deeper into the characteristics of our companies. All these elements are necessary in our investment process.


LEI 04. Type of ESG information used in investment decision

04.1. Indicate what ESG information you use in your ESG incorporation strategies and who provides this information.

Type of ESG information

Indicate who provides this information  

Indicate who provides this information 

Indicate who provides this information 

Indicate who provides this information 

Indicate who provides this information 

Indicate who provides this information 

04.2. Provide a brief description of the ESG information used, highlighting any differences of sources of information across your ESG incorporation strategies.

We use third party ESG-analysis for the normative UN Global Compact Screen and use inputs, data and thematic information from third party ESG-providers for our ESG-integration work. However, we do not use the ESG-ratings of any third parties directly, but set our own deeply researched ESG-ratings for all of our investee companies. These are based on data and information from third party research and data providers, but mainly on our own proprietary analysis.

04.3. Indicate if you incentivise brokers to provide ESG research.

04.4. Describe how you incentivise brokers.

We incentivise brokers through quarterly payments for original and value-adding analysis and research, including ESG-analysis.

04.5. Additional information.[Optional]


LEI 05. Information from engagement and/or voting used in investment decision-making

05.1. Indicate if your organisation has a process through which information derived from ESG engagement and/or (proxy) voting activities is made available for use in investment decision-making.

05.2. Additional information. [Optional]


(A) Implementation: Screening

LEI 06. Types of screening applied

06.1. Indicate and describe the type of screening you apply to your internally managed active listed equities.

Type of screening

Screened by

Description

Our listed equity funds seek out mis-priced companies that are set to benefit from the long-term trends of climate change, inadequate infrastructure, environmental constraints, changing demographics, urbanisation and the resultant increases in resource scarcity. Investment is focused on a small number of deeply researched global equity strategies across alternative energy, energy efficiency, water, waste and sustainable food. We positively screen for companies active in these areas, with a min. 20% of revenues.

Our investable universe is screened quarterly on a normative-basis by a third party ESG-research provider, in order to ensure that none of our companies breach any of the ten UN Global Compact Principles. We will not invest in companies that breach fundamental normative issues such as Human Rights, Labour Rights or involvement with corrupt practices. However, we do not perform negative screens, across all our listed equity investments.

We also screen all the companies in our investable universe for material ESG-aspects. An ESG-analysis is an integral part of our investment analysis and process, it provides us with a more complete picture of the companies we invest in. We analyse our companies' governance structures from a country-perspective and their environmental/social risks from a materiality-based sector perspective.

Screened by

          Companies involved in the production / manufacturing of cluster munitions or anti-personnel mines would be screened out, as this constitutes as a human rights breach.
        

Description

Our investable universe is screened on a normative-basis by a third party ESG-research provider on a quarterly basis, in order to ensure that none of our investee companies are in breach of any of the ten UN Global Compact Principles. We will not invest in companies that breach fundamental issues such as Human Rights, Labour Rights or are involved with corrupt practices.

Companies involved in the production / manufacturing of cluster munitions or anti-personnel mines would also be screened out, as this constitutes as a human rights breach.

 

06.2. Describe how the screening criteria are established, how often the criteria are reviewed and how you notify clients and/or beneficiaries when changes are made.

A third party ESG-research provider screens our investable universe every quarter to identify any potential UN Global Compact issues. Companies which are found to have minor issues are flagged and we monitor these particularly thoroughly and engage with these companies where relevant. Companies that are not compliant with the UN Global Compact principles are excluded from investment.


LEI 07. Processes to ensure screening is based on robust analysis

07.1. Indicate which processes your organisation uses to ensure screening is based on robust analysis.

          Third party independent committee verifies bi-annually the continued validity of the environmental inclusion criteria and definitions, underpinning our positively screened investment universe.
        

07.2. Additional information. [Optional]

Positive screening for environmental activity

Companies must have at least 20% of revenues from environmental or resource efficiency activities to be part of the Impax investment universe. Impax has dedicated staff developing and maintaining the investment universe. The entire universe is screened once a year to ensure that all companies still adhere to the minimum revenue target. Companies that no longer attain this minimum level of revenue are removed from the investable universe database. There is a third party independent committee that verifies bi-annually the continued validity of the environmental inclusion criteria and definitions, underpinning our positively screened investment universe.

Normative screening for UN Global Compact breaches

A third party ESG-research provider screens our investable universe every quarter to identify any potential UN Global Compact issues. Companies which are found to have minor issues are flagged and we monitor these particularly thoroughly and engage with these companies where relevant. Companies that are not compliant with the UN Global Compact principles are excluded from investment and excluded from our "A-list" or investable universe database. Companies involved in the production / manufacturing of cluster munitions or anti-personnel mines would also be screened out, as this constitutes as a human rights breach. We use external data providers to flag controversial business activities.

Screening of ESG criteria (ESG analysis)

ESG-analysis is an integral part of the Impax investment process. Our multi-step Listed Equities investment process incorporates ESG parameters into the investment analysis of companies through a thorough examination of company management/board structures, governance, ownership, corporate behaviour and Environmental and Social policies, processes and disclosures, following a materiality approach. We assign a proprietary ESG-rating for each company (Excellent, Good, Average, Fair and Excluded). If a company scores below a threshold-level, it will be automatically excluded from our investable universe. In addition, for Hong Kong and China-based companies, we have a further "governance tool" in place and we have identified five governance metrics that each company entering our investable universe must have in place. Finally, all companies must be approved by the Investment Committee on ESG-criteria before being admitted to the Impax universe of investable stocks.


LEI 08. Processes to ensure fund criteria are not breached

08.1. Indicate which processes your organisation uses to ensure fund criteria are not breached

          Third party independent committee verifies bi-annually the continued validity of the environmental inclusion criteria and definitions, underpinning our positively screened investment universe.
        

08.2. If breaches of fund screening criteria are identified - describe the process followed to correct those breaches.

Positive screening for environmental activity

Companies must have at least 20% of revenues from environmental or resource efficiency activities to be part of the Impax investment universe. The entire universe is screened once a year to ensure that all companies still adhere to the minimum revenue target. Companies that no longer attain this minimum level of revenue are removed from the investable universe database.   

Normative screening for UN Global Compact breaches

A third party ESG-research provider screens our investable universe every quarter to identify any potential UN Global Compact issues. Companies which are found to have minor issues are flagged and we monitor these particularly thoroughly and engage with these companies where relevant. Companies that are not compliant with the UN Global Compact principles are excluded from investment and excluded from our "A-list" or investable universe database. Companies involved in the production / manufacturing of cluster munitions or anti-personnel mines would also be screened out, as this constitutes as a human rights breach. We use external data providers to flag controversial business activities.

Screening of ESG criteria (ESG analysis)

ESG-analysis is an integral part of the Impax investment process. Our multi-step Listed Equities investment process incorporates ESG parameters into the investment analysis of companies through a thorough examination of company management/board structures, governance, ownership, corporate behaviour and Environmental and Social policies, processes and disclosures, following a materiality approach. We assign a proprietary ESG-rating for each company (Excellent, Good, Average, Fair and Excluded). If a company scores below a threshold-level, it will be automatically excluded from our investable universe, A-list and can not be traded in our trading systems. In addition, for Hong Kong and China-based companies, we have a further "governance tool" in place. We have identified five governance metrics that each company entering our investable universe must have in place. Finally, all companies must be approved by the Investment Committee on ESG-criteria before being admitted to the Impax universe of investable stocks.

We have a proprietary data analytics and risk tool (VIPER-analytics) that identifies and immediately flags any breaches to our screening rules and principles.

08.3. Additional information.[Optional]


(B) Implementation: Thematic

LEI 09. Types of sustainability thematic funds/mandates

09.1. Indicate the type of sustainability thematic funds or mandates your organisation manages.

09.2. Describe your organisation’s processes for sustainability themed funds. [Optional]

Impax Asset Management is a leading investment manager dedicated to investing in the opportunities created by the scarcity of natural resources and the growing demand for cleaner, more efficient products and services, through both listed and private equity strategies.

Impax's listed equity funds seek out mis-priced companies that are set to benefit from the long-term trends of climate change, inadequate infrastructure, environmental constraints, changing demographics, urbanisation and the resultant increases in resource scarcity. Investment is focused on a small number of deeply researched global equity strategies across alternative energy, energy efficiency, water, waste, sustainable food and agriculture and related markets.

As part of our investment process, we develop and maintain a large database of our entire investment universe, currently c. 1,600 companies. We review and update the exact % of revenue (or other business activity indicator) derived from the resource efficiency and environmental markets for each company on an annual basis. This process ensures that our investee companies are and continue to be part of the economy and sectors benefiting from resource and environmental opportunities and to further develop and expand our investment universe. The companies we invest in must derive at least 50% or 20% of revenues (depending on the strategy) from the resource efficiency and environmental sectors.

One person in the Impax investment team is dedicated to maintaining and developing our investment universe.

Impax is a thought leader in defining the markets in which we invest, for example through a partnership with FTSE to develop and manage the classification system underpinning the FTSE Environmental Markets Index Series.


(C) Implementation: Integration of ESG issues

LEI 10. Review ESG issues while researching companies/sectors

10.1. Indicate if E, S and G issues are reviewed while researching companies and/or sectors in active strategies.

ESG issues

Coverage/extent of review on these issues

Environmental

Environmental

Social

Social

Corporate Governance

Corporate Governance

10.2. Additional information. [Optional]


LEI 11. Processes to ensure integration is based on robust analysis

11.1. Indicate which processes your organisation uses to ensure ESG integration is based on a robust analysis.

11.2. Describe how ESG information is held and used by your portfolio managers.

11.3. Additional information.[Optional]

We analyse company governance aspects from a country-perspective, as governance is mainly driven by local codes, rules, traditions etc. We look for potential outliers from a country-perspective.

We analyse company environmental and social aspects from a sector-perspective. We have determined what the most material environmental and social risks are for our sub-sectors and analyse how well companies address these risks through effective management systems and processes. We are minded that companies do not necessarily "fit well" into industry/sector groups and company activities are analysed for most material risks.  

We identify any controversies that companies have faced.

We write an ESG-write up and these elements are the basis for our proprietary ESG-rating. We review the ESG analysis and score on an annual basis or if a material event occurs.  

The ESG-ratings are available for the entire investment team in our market data provider system, in the universe and investable universe databases and in the risk management and portfolio review as well as portfolio construction materials.

ESG issues are a standing agenda item at the weekly Investment Committee meetings and during the weekly portfolio review meetings for the various listed equity strategies.


LEI 12. Aspects of analysis ESG information is integrated into

New selection options have been added to this indicator. Please review your prefilled responses carefully.

12.1. Indicate which aspects of investment analysis you integrate ESG information into.

12.2a. Indicate which methods are part of your process to integrate ESG information into fair value/fundamental analysis and/or portfolio construction.

12.3. Describe how you integrate ESG information into portfolio construction

  • We have established the material ESG-risk criteria at the sub-sector levels.
  • Our ESG-analysis is very focused on the operational management of the company, as well as its governance structures, internal control and e.g. accounting and tax practices.
  • Policy and regulatory issues facing companies are an important part of our ESG-analysis.
  • Company strategy is a very important aspect of analysis and in our view companies that thoroughly understand their main ESG-risks and have strong sustainability processes in place to address these, are much better positioned and resilient in the face of challenges.
  • Our portfolio construction process takes ESG into account; companies with some ESG-weakness (scoring "fair") have their position sizes capped in the portfolios for risk management purposes, while the companies scoring strongly on ESG, give conviction to the lead analyst / portfolio manager.  

 

12.4a. Describe the methods you have used to adjust the income forecast / valuation tool

We have made some early work on applying a higher WACC (weighted average cost of capital) on companies with higher company or sector-specific ESG risks.

12.2b. Indicate which methods are part of your process to integrate ESG information into fair value/fundamental analysis and/or portfolio construction.

12.4b. Describe the methods you have used to adjust the income forecast / valuation tool

We have made some early work on applying a higher WACC (weighted average cost of capital) on companies with higher company or sector-specific ESG risks.

12.5. Additional information.


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